Loans and Allowance for Credit Losses | Note 4. Loans and Allowance for Credit Losses The Company generally makes loans in its market areas of south Mississippi; southern and central Alabama; northwest, central and south Louisiana; the northern, central and panhandle regions of Florida; and certain areas of east and northeast Texas, including Houston, Beaumont and Dallas; and Nashville, Tennessee. The following table presents loans, net of unearned income, by portfolio class at December 31, 2019 and 2018: (in thousands) 2019 2018 Commercial non-real estate $ 9,166,947 $ 8,620,601 Commercial real estate - owner occupied 2,738,460 2,457,748 Total commercial and industrial 11,905,407 11,078,349 Commercial real estate - income producing 2,994,448 2,341,779 Construction and land development 1,157,451 1,548,335 Residential mortgages 2,990,631 2,910,081 Consumer 2,164,818 2,147,867 Total loans $ 21,212,755 $ 20,026,411 The Bank makes loans in the normal course of business to directors and executive officers of the Company and the Bank and to their associates. Loans to such related parties are made on substantially the same terms, including interest rates and collateral requirements, as those prevailing at the time for comparable transactions with unrelated parties and do not involve more than normal risk of collectability when originated. Balances of loans to the Company’s directors, executive officers and their associates at December 31, 2019 and 2018 were approximately $13.4 million and $37.5 million, respectively. Included in such loans at December 31, 2018 was $22.4 million to directors that retired in 2019. Related party loan activity in 2019 includes new loans of $7.1 million and repayments of $8.8 million. The Bank has a line of credit with the Federal Home Loan Bank of Dallas that is secured by blanket pledges of certain qualifying loan types. The Bank had borrowings on this line of $2.0 billion and $1.2 billion at December 31, 2019 and 2018, respectively. The following schedules show activity in the allowance for credit losses by portfolio segment for the year ended December 31, 2019 and the activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2018, as well as the corresponding recorded investment in loans at December 31, 2019 and 2018. Commercial Non-Real Estate Commercial Real Estate- Owner Occupied Total Commercial and Industrial Commercial Real Estate- Income Producing Construction and Land Development Residential Mortgages Consumer Total (in thousands) Year Ended December 31, 2019 Allowance for credit losses Allowance for loan losses: Beginning balance $ 97,752 $ 13,757 $ 111,509 $ 17,638 $ 15,647 $ 23,782 $ 25,938 $ 194,514 Charge-offs (39,600 ) (137 ) (39,737 ) (32 ) (7 ) (846 ) (18,455 ) (59,077 ) Recoveries 6,940 306 7,246 569 140 480 3,645 12,080 Net provision for loan losses 41,340 (2,949 ) 38,391 2,694 (6,430 ) (3,085 ) 12,164 43,734 Ending balance - allowance for loan losses $ 106,432 $ 10,977 $ 117,409 $ 20,869 $ 9,350 $ 20,331 $ 23,292 $ 191,251 Reserve for unfunded lending commitments: Beginning balance $ — $ — $ — $ — $ — $ — $ — $ — Provision for losses on unfunded commitments 3,974 — 3,974 — — — — 3,974 Ending balance - reserve for unfunded lending commitments $ 3,974 $ — $ 3,974 $ — $ — $ — $ — $ 3,974 Total allowance for credit losses $ 110,406 $ 10,977 $ 121,383 $ 20,869 $ 9,350 $ 20,331 $ 23,292 $ 195,225 Allowance for loan losses: Individually evaluated for impairment $ 21,733 $ 104 $ 21,837 $ 18 $ 21 $ 217 $ 292 $ 22,385 Amounts related to purchased credit impaired loans 164 169 333 39 136 7,474 275 8,257 Collectively evaluated for impairment 84,535 10,704 95,239 20,812 9,193 12,640 22,725 160,609 Allowance for loan losses $ 106,432 $ 10,977 $ 117,409 $ 20,869 $ 9,350 $ 20,331 $ 23,292 $ 191,251 Reserve for unfunded lending commitments: Individually evaluated for impairment $ 3,974 $ — $ 3,974 $ — $ — $ — $ — $ 3,974 Total allowance for credit losses $ 110,406 $ 10,977 $ 121,383 $ 20,869 $ 9,350 $ 20,331 $ 23,292 $ 195,225 Loans: Individually evaluated for impairment $ 232,438 $ 4,381 $ 236,819 $ 1,898 $ 277 $ 5,174 $ 1,483 $ 245,651 Purchased credit impaired loans 31,073 36,200 67,273 35,353 20,516 86,757 5,346 215,245 Collectively evaluated for impairment 8,903,436 2,697,879 11,601,315 2,957,197 1,136,658 2,898,700 2,157,989 20,751,859 Total loans $ 9,166,947 $ 2,738,460 $ 11,905,407 $ 2,994,448 $ 1,157,451 $ 2,990,631 $ 2,164,818 $ 21,212,755 Commercial Non-Real Estate Commercial Real Estate- Owner Occupied Total Commercial and Industrial Commercial Real Estate- Income Producing Construction and Land Development Residential Mortgages Consumer Total (in thousands) Year Ended December 31, 2018 Allowance for loan losses: Beginning balance $ 127,918 $ 12,962 $ 140,880 $ 13,709 $ 7,372 $ 24,844 $ 30,503 $ 217,308 Charge-offs (40,069 ) (8,059 ) (48,128 ) (1,633 ) (334 ) (614 ) (23,913 ) (74,622 ) Recoveries 14,385 317 14,702 221 96 2,179 5,162 22,360 Net provision for loan losses (4,482 ) 8,537 4,055 5,341 8,513 (2,627 ) 20,834 36,116 Other — — — — — — (6,648 ) (6,648 ) Ending balance - allowance for loan losses $ 97,752 $ 13,757 $ 111,509 $ 17,638 $ 15,647 $ 23,782 $ 25,938 $ 194,514 Allowance for loan losses: Individually evaluated for impairment $ 3,636 $ 607 $ 4,243 $ 210 $ 1 $ 444 $ 216 $ 5,114 Amounts related to purchased credit impaired loans 239 215 454 43 83 9,766 388 10,734 Collectively evaluated for impairment 93,877 12,935 106,812 17,385 15,563 13,572 25,334 178,666 Total allowance for loan losses $ 97,752 $ 13,757 $ 111,509 $ 17,638 $ 15,647 $ 23,782 $ 25,938 $ 194,514 Loans: Individually evaluated for impairment $ 239,384 $ 21,666 $ 261,050 $ 2,701 $ 121 $ 3,876 $ 1,007 $ 268,755 Purchased credit impaired loans 6,629 6,212 12,841 3,757 3,387 105,430 4,181 129,596 Collectively evaluated for impairment 8,374,588 2,429,870 10,804,458 2,335,321 1,544,827 2,800,775 2,142,679 19,628,060 Total loans $ 8,620,601 $ 2,457,748 $ 11,078,349 $ 2,341,779 $ 1,548,335 $ 2,910,081 $ 2,147,867 $ 20,026,411 Impaired Loans The following table shows the composition of nonaccrual loans by portfolio class. Purchased credit impaired loans accounted for in pools with an accretable yield are considered to be performing and are excluded from the table. December 31, (in thousands) 2019 2018 Commercial non-real estate $ 178,678 $ 110,653 Commercial real estate - owner occupied 7,708 16,895 Total commercial and industrial 186,386 127,548 Commercial real estate - income producing 2,594 4,991 Construction and land development 1,217 2,146 Residential mortgages 39,262 35,866 Consumer 16,374 16,744 Total loans $ 245,833 $ 187,295 For the years ended December 31, 2019, 2018 and 2017, the estimated amount of interest income from nonaccrual loans that would have been recorded had the loans not been assigned nonaccrual status was $13.9 million, $13.7 million and $14.7 million, respectively. Nonaccrual loans include nonaccruing loans modified in troubled debt restructurings (TDRs) of $132.5 million and $85.5 million, at December 31, 2019 and 2018, respectively. Total TDRs, both accruing and nonaccruing, were $193.7 million at December 31, 2019 and $224.6 million at December 31, 2018. The table below details TDRs that were modified during the years ended December 31, 2019, 2018 and 2017 by portfolio segment. All such loans are individually evaluated for impairment. Years Ended ($ in thousands) 2019 2018 2017 Outstanding Recorded Investment Outstanding Recorded Investment Outstanding Recorded Investment Troubled Debt Restructurings: Number of Contracts Pre- Modification Post- Modification Number of Contracts Pre- Modification Post- Modification Number of Contracts Pre- Modification Post- Modification Commercial non-real estate 13 $ 64,051 $ 57,240 29 $ 85,306 $ 85,306 52 $ 162,909 $ 162,909 Commercial real estate - owner occupied 1 167 167 2 6,138 6,138 5 5,684 5,684 Total commercial and industrial 14 64,218 57,407 31 91,444 91,444 57 168,593 168,593 Commercial real estate - income producing 1 123 123 1 1,564 1,564 5 5,625 5,625 Construction and land development 3 323 323 — — — — — — Residential mortgages 21 3,286 3,286 14 1,297 1,297 15 2,812 2,812 Consumer 10 168 168 10 455 455 1 40 40 Total loans 49 $ 68,118 $ 61,307 56 $ 94,760 $ 94,760 78 $ 177,070 $ 177,070 The TDRs modified during the year ended December 31, 2019 reflected in the table above include $18.7 million of loans with extended amortization terms or other payment concessions, $41.3 million of loans with significant covenant waivers and $8.1 million with other modifications. In addition, the Company received approximately $6.8 million of equity securities of one commercial non-real estate borrower in satisfaction of a portion of its debt. The TDRs modified during the year ended December 31, 2018 include $50.8 million of loans with extended amortization terms or other payment concessions, $14.6 million of loans with significant covenant waivers, and $29.4 million with other modifications. The TDRs modified during the year ended December 31, 2017 include $98.1 million of loans with extended terms or other payment concessions, $76.2 million of loans with significant covenant waivers, and $2.8 million of other modifications. At December 31, 2019 and 2018, the Company had unfunded commitments of approximately $2.4 million and $2.1 million, respectively, to borrowers whose loan terms had been modified in TDRs. No TDRs modified during the years ended December 31, 2019 and 2017 subsequently defaulted within twelve month of modification. Of the TDRs modified during the year ended December 31, 2018, one residential mortgage totaling $0.2 million, one owner-occupied commercial real estate loan totaling $1.8 million and one consumer loan totaling less than $ 0.1 million defaulted within 12 months of the modification. The tables below present loans that are individually evaluated for impairment disaggregated by portfolio class at December 31, 2019 and 2018. Loans individually evaluated for impairment include TDRs and loans that are determined to be impaired and have aggregate relationship balances of $1 million or more. December 31, 2019 (in thousands) Recorded Investment Without an Allowance Recorded Investment With an Allowance Unpaid Principal Balance Related Allowance Commercial non-real estate $ 134,191 $ 98,247 $ 270,078 $ 21,733 Commercial real estate - owner occupied 2,665 1,716 7,793 104 Total commercial and industrial 136,856 99,963 277,871 21,837 Commercial real estate - income producing 373 1,525 1,959 18 Construction and land development — 277 322 21 Residential mortgages 3,383 1,791 5,709 217 Consumer 479 1,004 1,906 292 Total loans $ 141,091 $ 104,560 $ 287,767 $ 22,385 December 31, 2018 (in thousands) Recorded Investment Without an Allowance Recorded Investment With an Allowance Unpaid Principal Balance Related Allowance Commercial non-real estate $ 144,625 $ 94,759 $ 273,290 $ 3,636 Commercial real estate - owner occupied 13,027 8,639 25,888 607 Total commercial and industrial 157,652 103,398 299,178 4,243 Commercial real estate - income producing 1,138 1,563 3,428 210 Construction and land development 100 21 121 1 Residential mortgages 2,058 1,818 4,421 444 Consumer 279 728 1,253 216 Total loans $ 161,227 $ 107,528 $ 308,401 $ 5,114 The tables below present the average balances and interest income for total impaired loans for the years ended December 31, 2019 and 2018. Interest income recognized represents interest on accruing loans modified in a TDR. Years Ended December 31, 2019 December 31, 2018 (in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Commercial non-real estate $ 223,500 $ 4,917 $ 286,146 $ 7,919 Commercial real estate - owner occupied 14,719 196 25,325 343 Total commercial and industrial 238,219 5,113 311,471 8,262 Commercial real estate - income producing 2,407 27 9,155 71 Construction and land development 906 4 145 — Residential mortgages 4,578 11 5,598 18 Consumer 1,464 77 814 39 Total loans $ 247,574 $ 5,232 $ 327,183 $ 8,390 Aging Analysis The tables below present the age analysis of past due loans by portfolio class at December 31, 2019 and 2018. Purchased credit impaired loans with an accretable yield are considered to be current: December 31, 2019 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days past due Total Past Due Current Total Loans Recorded Investment > 90 Days and Accruing (in thousands) Commercial non-real estate $ 20,893 $ 13,445 $ 100,806 $ 135,144 $ 9,031,803 $ 9,166,947 $ 1,537 Commercial real estate - owner occupied 4,862 556 7,268 12,686 2,725,774 2,738,460 830 Total commercial and industrial 25,755 14,001 108,074 147,830 11,757,577 11,905,407 2,367 Commercial real estate - income producing 738 703 2,910 4,351 2,990,097 2,994,448 450 Construction and land development 5,747 680 2,480 8,907 1,148,544 1,157,451 2,042 Residential mortgages 32,867 8,584 23,577 65,028 2,925,603 2,990,631 85 Consumer 18,586 6,215 9,901 34,702 2,130,116 2,164,818 1,638 Total loans $ 83,693 $ 30,183 $ 146,942 $ 260,818 $ 20,951,937 $ 21,212,755 $ 6,582 December 31, 2018 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Total Loans Recorded Investment > 90 Days and Accruing (in thousands) Commercial non-real estate $ 12,257 $ 3,895 $ 77,551 $ 93,703 $ 8,526,898 $ 8,620,601 $ 10,823 Commercial real estate - owner occupied 2,394 1,570 14,542 18,506 2,439,242 2,457,748 380 Total commercial and industrial 14,651 5,465 92,093 112,209 10,966,140 11,078,349 11,203 Commercial real estate - income producing 2,371 772 5,495 8,638 2,333,141 2,341,779 1,844 Construction and land development 7,397 1,129 2,165 10,691 1,537,644 1,548,335 644 Residential mortgages 32,869 14,706 23,175 70,750 2,839,331 2,910,081 — Consumer 20,402 4,695 9,665 34,762 2,113,105 2,147,867 618 Total loans $ 77,690 $ 26,767 $ 132,593 $ 237,050 $ 19,789,361 $ 20,026,411 $ 14,309 Credit Quality Indicators The tables below present the credit quality indicators classes by segments and portfolio class of loans at December 31, 2019 and December 31, 2018. December 31, 2019 (in thousands) Commercial Non- Real Estate Commercial Real Estate - Owner Occupied Total Commercial and Industrial Commercial Real Estate - Income Producing Construction and Land Development Total Commercial Grade: Pass $ 8,492,113 $ 2,517,448 $ 11,009,561 $ 2,883,553 $ 1,120,997 $ 15,014,111 Pass-Watch 220,850 146,266 367,116 69,765 25,621 462,502 Special Mention 71,654 14,651 86,305 14,995 283 101,583 Substandard 382,330 60,095 442,425 26,135 10,550 479,110 Doubtful — — — — — — Total $ 9,166,947 $ 2,738,460 $ 11,905,407 $ 2,994,448 $ 1,157,451 $ 16,057,306 December 31, 2018 (in thousands) Commercial Non- Real Estate Commercial Real Estate - Owner Occupied Total Commercial & Industrial Commercial Real Estate - Income Producing Construction and Land Development Total Commercial Grade: Pass $ 7,875,588 $ 2,274,211 $ 10,149,799 $ 2,265,087 $ 1,487,599 $ 13,902,485 Pass-Watch 260,510 84,271 344,781 46,535 49,099 440,415 Special Mention 75,752 23,149 98,901 5,510 816 105,227 Substandard 408,751 76,117 484,868 24,647 10,821 520,336 Doubtful — — — — — — Total $ 8,620,601 $ 2,457,748 $ 11,078,349 $ 2,341,779 $ 1,548,335 $ 14,968,463 December 31, 2019 December 31, 2018 (in thousands) Residential Mortgage Consumer Total Residential Mortgage Consumer Total Performing $ 2,950,854 $ 2,147,312 $ 5,098,166 $ 2,873,669 $ 2,130,395 $ 5,004,064 Nonperforming 39,777 17,506 57,283 36,412 17,472 53,884 Total $ 2,990,631 $ 2,164,818 $ 5,155,449 $ 2,910,081 $ 2,147,867 $ 5,057,948 Below are the definitions of the Company’s internally assigned grades: Commercial: • Pass - loans properly approved, documented, collateralized, and performing which do not reflect an abnormal credit risk. • Pass - Watch - credits in this category are of sufficient risk to cause concern. This category is reserved for credits that display negative performance trends. The “Watch” grade should be regarded as a transition category. • Special Mention - a criticized asset category defined as having potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the credit or the institution’s credit position. Special mention credits are not considered part of the Classified credit categories and do not expose an institution to sufficient risk to warrant adverse classification. • Substandard - an asset that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. • Doubtful - an asset that has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. • Loss - credits classified as Loss are considered uncollectable and are charged off promptly once so classified. Residential and Consumer: • Performing – accruing loans that have not been modified in a troubled debt restructuring. • Nonperforming – loans for which there are good reasons to doubt that payments will be made in full. All loans with nonaccrual status and all loans that have been modified in a troubled debt restructuring are classified as nonperforming. Purchased Credit Impaired Loans Changes in the carrying amount of purchased credit impaired loans and related accretable yield are presented in the following table for the years ended December 31, 2019 and 2018: 2019 2018 Carrying Carrying Amount Accretable Amount Accretable (in thousands) of Loans Yield of Loans Yield Balance at beginning of period $ 129,596 $ 37,294 $ 153,403 $ 62,517 Additions 120,562 6,246 — — Payments received, net (48,076 ) (4,601 ) (39,556 ) (5,779 ) Accretion 13,163 (13,163 ) 15,749 (15,749 ) Increase (decrease) in expected cash flows based on actual cash flow and changes in cash flow assumptions — 4,170 — (3,695 ) Balance at end of period $ 215,245 $ 29,946 $ 129,596 $ 37,294 Residential Mortgage Loans in Process of Foreclosure Loans in process of foreclosure include those for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction. Included in loans are $8.6 million and $7.1 million of consumer loans secured by single family residential mortgage real estate that are in process of foreclosure as of December 31, 2019 and 2018, respectively. In addition to the single family residential real estate loans in process of foreclosure, the Company also held $6.3 million and $1.8 million of foreclosed single family residential properties in other real estate owned as of December 31, 2019 and 2018, respectively. Loans Held for Sale Loans held for sale totaled $55.9 million and $ 28.1 |